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Daimler Under Pressure as Costs Soar

Maker says it needs to pump cash into R&D.

by on Feb.18, 2011

Daimler's turnaround was "impressive," asserted CEO Dieter Zetsche, but some disagree.

Despite major league improvements in earnings during 2010, analysts fear Daimler AG’s turnaround is looking ragged around the edges. Analysts fear the company’s newly-announced earnings before interest and taxes fell well short of expectations and Daimler’s ability to control its costs is growing suspect.

Dieter Zetsche, chairman of Daimler’s management board, said part of the reason for the poor shape of the so-called EBIT number was the big increase in spending on research and development.

Part of the reason for the rather dramatic rise in research and development spending is Daimler desire to maintain a strong position.  And a big part of that has to do with maintaining a strong presence in the Chinese market – which means honoring the Chinese government’s desire for electric-powered vehicles.

Up until recently, Mercedes-Benz has consistently turned up its nose at EVs and countered that it was a leader in diesel technology.  Not surprisingly it’s also been something of a laggard in battery technology.

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Daimler’s management, however, has undergone a conversion on the road to Beijing and is now scrambling to catch up to mollify China’s gatekeepers.

The price tag, though, is bound to increase dramatically in the near future.  And adding to the R&D budget pressures is the need to retool the long-struggling Smart car brand.  (Daimler moves to take the Smart brand’s U.S. franchise away from Penske Automotive. Click Here for details.)